Landlords could potentially find themselves hit with new lease requirements, periodic checking obligations and even financial penalties following the publication of the ‘Sanctions to tackle tobacco duty evasion and other excise duty evasion’ consultation document by HM Revenue & Customs.
The context
The government is committed to tackle evasion of tobacco duty and the illicit tobacco trade. In 2015-16, the UK consumed around 5 billion illicit cigarettes and 3,200 tonnes of illicit hand-rolling tobacco. Evasion of tobacco duty robs public finances of revenue and undermines the government’s wider public health objective of reducing smoking, which contributes to over 100,000 deaths each year.
What does this have to do with landlords?
Whilst the underground world of illicit tobacco trading may seem remote to landlords, they need to be aware of some key – and potentially onerous – proposals of the consultation. These proposals reflects a perception that some landlords are turning a blind eye to their tenant’s behaviour to protect their rental income.
Whilst many leases prohibit a tenant from using the property for any illegal, immoral or improper purpose, HMRC are proposing to write to landlord associations to request that they voluntarily add a clause to their standard lease agreements prohibiting illicit tobacco or excise trading.
More serious is a potential sanction proposed in the consultation which would impose a statutory duty of care on the landlords of properties or land which are used in tobacco (or other excise duty) fraud. The proposals are:
1. The duty of care would only arise once the landlord has been notified that the tenant has evaded an excise duty
2. Landlords who have taken reasonable steps to prevent future wrongdoings on their property would have a defence available (in an effort to minimise the burden on them). Such reasonable steps could include:
- Including provisions in all new leases making it clear that any illicit tobacco trading or any other illicit excise activity will terminate an existing lease and providing HMRC with copies of tenancy agreements. It is not clear whether the usual forfeiture clause for breach of covenant would suffice.
- Requiring the landlord to undertake periodic checks of the premises and request relevant information from tenants.
- Contacting HMRC or Trading Standards immediately should landlords have any concerns.
3. If the tenant continues to deal in illicit excise trading and the landlord cannot demonstrate that they have taken steps to address the issue, HMRC will consider action against the landlord. A new civil penalty would be introduced for non-compliance.
HMRC hopes this will raise landlords’ awareness of the issue and root out illicit sales of tobacco in their properties.
What happens next?
The consultation document seeks views on whether the proposed steps landlords could take to prevent illicit activity on their properties are reasonable and proportionate. HMRC is also querying what sanctions they should apply to landlords who fall short of their obligations, including whether they should suffer a financial penalty.
Responses to the consultation are due by 12 May 2017.
A copy of the consultation document published by HMRC can be found here to:https://www.gov.uk/government/consultations/sanctions-to-tackle-tobacco-duty-evasion-and-other-excise-duty-evasion